Pressure mounts on Yahoo over CEO background

By STEVE JOHNSON and PETE CAREY

San Jose Mercury News

SAN JOSE, Calif. – Yahoo Inc.’s response to the revelation that CEO Scott Thompson misrepresented his educational background failed to satisfy the major investor who raised the issue and on Friday a second investor called for Thompson’s ouster.

The Sunnyvale, Calif., company, which has been under fire from shareholders for its lackluster performance and leadership problems, on Thursday disclosed that Thompson did not have the computer science degree he claimed to have and that the company is launching a review of the matter. It termed the falsehood, which has been repeated in the company’s regulatory filings with the U.S. Securities and Exchange Commission, an “inadvertent error.”

But the investor who disclosed Thompson’s misrepresentation – Dan Loeb of New York-based Third Point – on Friday denounced Yahoo’s response as “insulting to shareholders.”

Calling the falsehood inadvertent “is, in our view, the height of arrogance,” Loeb declared in a letter to Yahoo’s board. “Mr. Thompson and the board should make no mistake: This is a big deal. CEOs have been terminated for less at other companies.”

Loeb, whose company owns 8.1 percent of Yahoo’s shares, also said it “will consider it grounds for further action” if the board fails to take additional steps by noon Monday. That includes thoroughly disclosing “the process by which it vetted Mr. Thompson as a potential CEO candidate” and whether any board members were “aware of Mr. Thompson’s deception” before Third Point complained about it on Thursday.

Loeb also demanded that the board “terminate Mr. Thompson for cause immediately given his demonstrable unsuitability to remain chief executive officer” and “accept the resignation” of board member Patti Hart, who led the search committee that picked Thompson. Loeb has complained that Yahoo also misrepresented Hart’s resume in a SEC filing that said she holds a bachelor’s degree in marketing and economics from Illinois State University. Her degree actually is in business administration with a specialty in marketing, Yahoo said Thursday.

The revelation about Thompson also didn’t sit well with Yahoo investor Eric Jackson of Ironfire Capital.

“I think Thompson’s got to go,” he said in an interview Friday. “Putting shareholders aside, I don’t know how any engineer at Yahoo could listen to that guy from now on and not think in the back of their mind, ‘Why in the heck would you make up that you studied computer science?’ It’s going to be completely distracting. Maybe he can reconstruct his reputation somewhere else.”

Jackson added that “Hart has got to go for the same reason. Same thing as Thompson. But even worse, she was head of the nominating committee. She was responsible for doing the vetting.”

Jackson also endorsed Loeb’s call for new board members to be appointed at Yahoo.

“This just opens up a huge amount of questions of who’s going to be on this board going forward,” Jackson said. “Why should we rely on people who have made these terrible decisions to appoint their successors? It doesn’t make sense.”

Lee Altschuler, former chief of the Silicon Valley branch of the U.S. Attorney’s Office in Northern California, said it was unlikely Yahoo could be prosecuted for filing incorrect information about Thompson’s educational background with the SEC.

“If the company unknowingly makes a mistake, no,” he said. “People make mistakes. Everyone makes mistakes.”

But, he said, it’s possible the company could face shareholder lawsuits over the falsehood.